Income Data for Policy Analysis: A Comparative Assessment of Eight Surveys. Within-Year Inflation Adjustments

12/23/2008

 While the rolling reference period for income data in the ACS means that the annual incomes that are collected represent an average of 12 different 12-month intervals centered around December of the prior year (which appears in every interval), the Census Bureau applies an inflation adjustment in order to convert the responses to constant dollars for the survey year. For the ACS income data collected in 2003, the reported incomes were adjusted by survey month based on an average of monthly values of the CPI-U. Income data collected in December 2003 received the smallest adjustment while income data collected in January were adjusted for a full year of price inflation.

After application of the inflation adjustment to the data underlying Table V.11, we still find no evident time trend in the distribution of aggregate dollars either within or across income quintiles (Table V.14). We can draw no insights into what the respondents may have reported in response to questions to provide their incomes for the past 12 months.

Another way to look at the inflation adjustment is to compare its effect on per capita income by quintile with the actual growth in per capita income as measured in the ACS between 2002 and 2003. The observed change between 2002 and 2003 will reflect a 12-month increase in income rather than the six-and-a-half month increase that is the goal of the inflation adjustment. In addition, actual annual growth in per capita income will incorporate the net effect of population change—that is, births, deaths, and net migration. These affect not only the size of the population but its income as well, and they are not taken into account in the ACS inflation adjustment.

TABLE V.14: AGGREGATE INCOME IN PREVIOUS 12 MONTHS BY FAMILY INCOME QUINTILE WITH AMOUNTS ADJUSTED FOR INFLATION: 2003 ACS
Month Lowest Quintile of Family Income Second Quintile of Family Income Third Quintile of Family Income Fourth Quintile of Family Income Highest Quintile of Family Income Total
Jan 30.24 63.07 94.12 122.08 237.04 546.54
Feb 29.29 64.54 93.44 118.78 228.66 534.71
Mar 30.47 64.04 89.71 116.11 222.40 522.73
Apr 29.95 64.77 89.76 113.72 224.59 522.79
May 29.79 64.44 89.68 120.81 233.24 537.95
Jun 29.94 66.51 91.38 126.40 219.91 534.14
Jul 29.98 65.51 90.97 123.83 233.31 543.61
Aug 29.73 64.50 89.48 123.04 229.76 536.51
Sep 29.68 66.37 90.36 117.81 233.77 537.99
Oct 30.74 66.03 89.83 118.78 229.07 534.44
Nov 30.50 65.92 91.04 117.53 230.36 535.36
Dec 29.95 65.49 90.55 121.53 224.37 531.90

Source: U.S. Census Bureau, Housing and Household Economic Statistics Division, special tabulations.

Note: The estimates for each month are based on households interviewed in that month. Aggregate amounts are 1/12 what they would be if all sample households were interviewed in each month.

The upper portion of Table V.15 presents estimates of total persons and total income by quintile of family income for the 2002 ACS, with and without adjustment, and for the 2003 ACS without adjustment. The adjustment is based on the application of the income adjustment factor provided on the ACS public use file, which represents an average of the 12 monthly adjustment factors that the Census Bureau applies to reported income on its internal file. The next panel of the table presents estimates of per capita income derived by dividing the aggregate income by the number of persons, by quintile, for the 2002 ACS (with and without adjustment) and the 2003 ACS. The final panel shows the percentage growth in annual per capita income based on comparing both the adjusted 2002 ACS estimates and the unadjusted 2003 ACS estimates with the unadjusted 2002 ACS estimates.

While the application of the ACS adjustment yields a uniform increase of about 0.93 percent in per capita income across the five quintiles (and for the population as a whole), we see a rather different pattern in the actual growth of per capita income over the full year. The amount of growth in per capita income increases over the income quintiles, beginning with negative growth in the first two quintiles (-0.58 and -0.35 percent respectively), followed by growth of 0.86 percent and 2.17 percent in the next two quintiles. Growth in the top quintile is slightly lower than in the fourth quintile at 2.02 percent. Over the population as a whole the increase is 1.32 percent.

What these patterns suggest is that income does not grow uniformly by quintile. The application of uniform price adjustments to convert ACS income to constant dollars for the survey year may have the unintended consequence of putting too much income at the low end of the distribution, where immigration and other aspects of population dynamics may function to depress or at least hide growth. In a year with a more substantial inflation than 2002 and 2003, this aspect of the price adjustment is likely to be even more evident.

TABLE V.15: COMPARISON OF ACS INCOME ADJUSTMENT WITH ANNUAL GROWTH IN INCOME BY QUINTILE, 2002 TO 2003
Estimate Lowest Family Income Quintile Second Family Income Quintile Third Family Income Quintile Fourth Family Income Quintile Highest Family Income Quintile Total
Millions of Persons ACS 2002 unadjusted 56.57 54.61 55.48 55.52 55.50 277.69
ACS 2002 adjusted 56.49 54.59 55.55 55.53 55.54 277.69
ACS 2003 unadjusted 57.04 55.21 55.92 56.37 55.74 280.28
Billions of Dollars ACS 2002 unadjusted 365.8 772.2 1,076.2 1,402.5 2,669.5 6,286.2
ACS 2002 (final adjusted) 368.7 778.4 1,087.4 1,415.8 2,696.0 6,346.3
ACS 2003 (original unadjusted) 366.7 777.9 1,094.0 1,454.9 2,734.9 6,428.4
Per Capita Income ACS 2002 unadjusted 6,466 14,140 19,396 25,263 48,096 22,637
ACS 2002 (final adjusted) 6,526 14,259 19,576 25,496 48,543 22,854
ACS 2003 (original unadjusted) 6,429 14,090 19,564 25,810 49,065 22,936
Percentage Increase in Per Capita Income Adjustment to ACS 2002 0.93 0.84 0.93 0.92 0.93 0.96
Growth from ACS 2002 to ACS 2003 -0.58 -0.35 0.86 2.17 2.02 1.32

Source: Mathematica Policy Research, from tabulations of the 2002 and 2003 ACS.

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